On January 1, year 1, Post Inc. acquires Sam Company in a
transaction properly accounted for as a business combination.
Samís employees have share-based payments that will expire as a
consequence of the business combination. In order to maintain
employee morale, Post voluntarily replaces the awards to employees
30 days after the date of acquisition. How should Post
account for the replacement awards given to Samís employees?

Post should include the fair value of the awards as consideration
paid in the cost of acquisition.
Post should recognize compensation expense for the
value of the awards in the postcombination financial
statements.Post should recognize an extraordinary loss for the fair
value of the replacement awards in its financial statements.
Post should capitalize the cost of the awards and amortize
the cost over the remaining service years of the
employees.

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

(b) If no further service is required to be provided and
Post voluntarily replaces the awards, compensation expense is
recognized in the postcombination financial statements when the
awards are made. Answers (a), (c), and (d) are incorrect because
they describe inappropriate ways to account for the awards.